The US military is building a three-mile concrete wall in the centre of Baghdad along the most murderous faultline between Sunni and Shia Muslims.

The wall, which recognises the reality of the hardening sectarian divide in Baghdad, is a central part of George Bush's final push to pacify the capital. Work began on April 10 under cover of darkness and is due for completion by the end of the month.

The highly symbolic wall has evoked comparisons to the barriers dividing Protestants and Catholics in Belfast and Israelis and Palestinians along the length of the West Bank.

Captain Scott McLearn, who is based at Camp Victory, the US base on the outskirts of Baghdad, said Shias "are coming in and hitting Sunnis, and Sunnis are retaliating across the street".

Although Baghdad is full of barriers and checkpoints, particularly round the Green Zone where the US and British are based along with the Iraq government, this is the first time a wall has been built along sectarian lines.

Its construction comes as the security situation appears to be deteriorating despite the recent US troop "surge". This week a bombing at the Sadriya market in the city killed 140 people - the deadliest in the capital since the 2003 invasion.

Walls are controversial. The Israeli government insists its wall is effective in reducing suicide bombers but Palestinians, many of whose lives it has seriously disrupted, as well as some Israelis argue that it consolidates divisions.

The Baghdad wall, which will be 12ft (3,5 metres) high, is being built by US paratroopers who left Camp Taji, about 20 miles north of the city, on the first night in a dozen trucks carrying stacks of huge concrete barriers, each weighing 14,000 pounds (6,300kg). Cranes, protected by tanks, winched them into place. Building has continued every night since.

News of the wall's construction came as the Democratic US Senate leader, Harry Reid, provoked a new row with the White House when he claimed the defence secretary, Robert Gates, and the secretary of state, Condoleezza Rice, know that "this war is lost". Mr Gates, on a visit to Baghdad yesterday, said: "On the war is lost, I respectfully disagree."

The White House repeated that the new strategy, which involves sending more US troops to Baghdad, is showing tentative signs of working.

Since the US-led invasion, "ethnic cleansing" has resulted in population shifts that have left Baghdad increasingly divided on sectarian grounds, separated by the Tigris which runs through the centre of the city. Sunnis are consolidating on the west side and Shias on the east. The wall is being built round the biggest remaining Sunni enclave on the east bank, at Adhamiya. Referred to by US troops as the Great Wall of Adhamiya, it is surrounded on three sides by Shia neighbourhoods and has been the scene of some of the city's worst violence.

There was confusion about the wall at US HQ. Major-General William Caldwell, the usual US spokesman in Baghdad, said on Wednesday he was unaware of efforts to build a wall. "Our goal is to unify Baghdad, not subdivide it into separate [enclaves]," he said. But a US military press release from Camp Victory provided extensive details about the construction. It said: "The area the wall will protect is the largest predominately Sunni neighbourhood in east Baghdad. The wall is one of the centrepieces of a new strategy by coalition and Iraqi forces to break the cycle of sectarian violence."

The strategy involves creating a series of gated communities, in which US and Iraqi troops control entry and exits. The aim is to try to prevent movement by insurgents, in particular suicide bombers.

Residents of Adhamiya had mixed feelings. Ahmed Abdul-Sattar, a government worker, said: "I don't think this wall will solve the city's serious security problems. It will only increase the separation between our people, which has been made so much worse by the war."